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Comment by woeirua | Hacker News Reader

There’s definitely going to be some major fallout from this. I don’t think SVB will be bought, and depositors certainly are not going to be made whole anytime soon. Why?

Well check out SVBs most recent 10-Q. Everyone knows they had $90B in MBS but most people haven’t commented on the fact that they also had $70B in loans as part of their assets. Normally loans are considered pretty safe assets, but as others have commented a good part of these loans are to the same depositors (startups) that SVB owes money to. Additionally SVB lent money to founders to buy homes, cars, etc. Hopefully you can see where this is going now… The real question is going to be how much if any of those loans SVB can recover to cover their deposits. This could mean calling in all kinds of credit instruments from startups that are ill prepared to suddenly pay them back.

Unless the loans are forgiven, in addition to making the depositors whole, SVB will still take a whole bunch of startups down with it. Those companies vendors will feel the hit too. It may take some time for the full repercussions to be felt but this is going to be a big deal.

Also, for those of you who didn’t live through 2008, there were plenty of people who assured everyone that everything was OK right until the music stopped.

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I don't think SVB is the keystone, but things simply don't feel correct right now.

* Inflation is unusually high right now

* The working/middle class is increasingly discontent.

* Rising interest rates are causing major follow on effects.

* Housing prices have been blowing up. Given increasing unemployment and interest rates, it's unclear what's going to happen there.

* The pandemic created insanity. Markets have made little sense over the past 3 years. They're just now returning to normal.

* Many, large companies are doing layoff. The market as a whole is signaling they don't expect profitability through revenue increase - so they're reducing burn.

-----

I have a hypothesis that markets are becoming increasingly optimize - which results in quicker returns, but also more frequent and harder drops/recessions.

I think the issue is way worse than all this, and way harder to solve - we're basically on the edge of the roaring 20s. inflation is high because companies are increase profit margin, and companies are increasing margin because there isn't enough competition. Companies would never voluntarily lower profitability, and are rewarded for short term actions, incl. layoffs, which are gutting long term stability of these companies. People, businesses, governments are increasingly indebted compared to prior generations. Housing in productive cities is way below demands, while there's empty houses in Detroit and Cleveland. Even with remote work (which is being clawed back), this isn't stabilizing and there isn't enough housing (esp. affordably). It takes years before that much housing can be built, assuming we legalize it (YIMBY v NIMBY). We don't have a strong growing population without immigration so there is no future generation big enough in this economic Ponzi scheme.

The working class (with housing and all that) are screwed, while the rich get richer. Eventually there's no where left to turn for profitability though - and no more debt Wall Street can issue to keep the spending up. Then what?

Don't forget that we are entering into a new cold (lukewarm) war over the next couple of years if this keep going which will require a complete re-jig of the entire world economic infrastructure as things are going to have to brought back and produced locally or near-shored to friendly countries.

I can't see this not affecting inflation as cost of goods will increase.

There will also be many more manufacturing jobs in the west, that will be really good for people that don't have access to a good job today. I wonder what that will do to inflation with more people better employed.

I have a hunch this has been happenomg for a while. Less food to go around, for example, as a major fertilizer exporter is currently fighting a land war on their territory.

Go back to the pre-neoliberal tax rates and have the highest income tax brackets go up to 60-70%?

Hell, restore the exact tax code from the end of the Reagan presidency and call it the “Reagan was right bill”. It would still be a massive step towards a balanced budget

Even better go the spending levels from back then.

It's interesting to play out what it means in more detail.

Try one of the many online 'balance the budget" games like https://us.abalancingact.com/2022-federal-budget .

Total federal outlays in 1989 were $1,143,744M in today's dollars. That's less than is currently spent on Medicare and Medicaid, ignoring everything else in the budget.

So you'll have to make some pretty substantial alterations.

Your tool does not allow for classic federal tax rates. It caps in the high 30s claiming higher taxes "do not work" in spite of the fact tax rates were double that for decades.

Interesting, perhaps this isn't the best one. It's more the exercise of trying to tweak revenue and spending that I am recommending than this particular site. Otherwise people seem to imagine that the problem is much easier than it is.

what about his deficits?

Ding ding.

A balanced budget also means freezing the amount of money held by the public. This is not a problem free situation.

come on. Why is BNPL taking off? no-cost emi? why should regular folk be given free access to credit to buy groceries and shit? remember, the interest is charged, it just gets added to the cost so everything gets expensive.

if only "essential" stuff like buying a home or a business got a loan, things would be much cheaper because overall there would be less interest to pay.

You are responding to a thread about federal budget balancing. This is not similar to balancing your own budget. If the federal government had no debt, the public would have no money.

Why doesn’t the government ever have to go on a diet.

It’s always productive people that have to pay more to government. For less.

And government has zero accountability. Zero motivation to use our money efficiently. 600+ foreign military bases… $200 hammers…

Justify more government wastefulness… before taking my earned money.

it always does go on a diet. but people demand it protect banks, oil, defense contractors, jobs, hospitals, poor states, poor people, rich people, rich states, .... and so on.

you benefit from having the FBI, FDA, NLRB, FAA and even the EPA while people try to rob you, give you fake drugs, force you into endless debt and low pay, put you on dangerous crowded flights and crash railroad cars around you with cheap stinking chemicals that stay on your lakes and farms for years.

these companies would rather you shuttup and buy from the only two identical stores left who raised their prices.... and shut down the government for your own problems.

not theirs.

Lol hell no

Several fair points there. The unmentioned element is Environmental / Climate.

That is, even if we could instantly magic into completion, all of the affordable housing to meet all global demand, and give it free to all who require it - as in, "hey! problems solved! enjoy your new homes, everybody!" - then the simple environmental load of doing that would put us quite significantly further on the road to ruin, in and of itself.

Climate change is here and will increase, so any human strategy involving "speed up! do more stuff! build more stuff!" is also inevitably an Own Goal in some respect. Even some things that we consider to be desperately needed for this or that societal reason.

First off, the actual scientists, like the ones at the IPCC say climate change will only slow growth, it won’t ruin us.

Your point - is basically what most well off (and since you’re on HN I assume you’re better off than 80-90% of the world) are now saying about climate change, screw the poor, they need to have expensive energy, expensive food, and according to you no affordable housing. Why? Because you think the world will be ruined, because that’s what your media is telling you, and you haven’t even looked at the scientific facts on this.

You know, maybe you should give up all your possession and live on rice and beans for the next 10 years, knowing you’ve done your bit for the climate, and then see how you feel.

Edit: removed personal attack at the end. It was unnecessary.

That's a whole lot of traits and mindsets you've unfairly assigned to me.

And that's part of the perennial problem with discussion nowadays. It's near impossible to speak without being pigeonholed and caricatured : "omg! you dared to tangentially hint that prioritising building comes with some downsides! one of them! you must, therefore, also hold this, this, this, and this unfavourable worldview! how horrid you are!!".

It's all a bit silly. And ironic, because I'm actually disabled, and on a really tiny income within the scale of my country. I already make my difference by living a low impact life, practicing what I preach. I'm in my 40's and I've never owned a car, and it's not because I can't drive. I consume so much less than my countrypeople, in general in life. While my friend is earning, and consuming, $150K worth of "whatever" per year, goods, consumables, flights here and there for this and that luxury frivolity, raising his kids rich-person style, I'm living a simple life at home making a lot out of a little. There'll be no kids for me.

Screw the poor?? I am one of the poor. Regardless, I still see the basic Occam's reality that our species as it stands (and with massive inertia) is currently saturating this planet's resources in many different ways. And the mindset that we can fix everything by getting busy will always be somewhat paradoxical. Because, as you point out, everything we need is already right there, stockpiled in the hands of a greedy minority.

I was with you until the last sentence. Why the vitriol? This is fundamentally a hard problem and I have a hard time defining an attitude towards climate change that I feel 100% good about.

The IPCC is famously conservative in their estimates of what impacts climate change will have.

The scarcity of affordable housing isn't from a lack of housing stock as much as it is from the ways that housing as an investment puts constant upward pressure on housing prices, and the ways that inequitable distributions of housing alienate people from the work of making home. We need people to feel invested in where they live, to take care of it, to care for it, but that kind of culture gets stifled by current housing ownership arrangements, where the incentive and opportunity to care for one's physical space gets sucked dry by the chain of landlords who could care less.

Why don't you all come and join us in Europe? We have what you are looking for:

- Universal high quality health care - Free education including high quality universities - Cheap or even free quality childcare - A social system that has everyone's back if shit hits the fan

No need to introduce socialism as some here seem to advocate. History has shown that this fails 100 out of 100 times, and it's been tried in every thinkable constellation.

Europe IMO has a better approach vs the US - still enough incentives to work hard, but aiming to afford everyone a humane existence. The main threat I see is that the balance is shifted too much to socialism over here, stifling innovation and ultimately destroying the wealth that funds all these goodies.

Part of the problem is that "socialism" is such a vague term, at least in the US. The most prominent self-defined socialist in the US, Bernie Sanders, doesn't want a Bolshevik revolution but basically just move the US to be more like Canada and Western Europe with increased safety nets and universal health care and free/cheap university education. On the other hand, yes, there are various fringe groups who are actually into Marx and collective ownership of everything despite the disasters they led to historically.

Look at comments further below - "forceful redistribution" etc. This is as bad as it gets and I think people don't know what they are talking about.

Eastern Germany started this way - "no one is intending to build a wall" they said, until one day, it was there.

You can't just go there. I don't see many European companies trying to recruit Americans in software. There's the language barrier for Americans but I think in software speaking English is good enough for many countries. We'd have to take a pay cut, but we know we'd be trading off less salary for actually useful lifetime benefits. I get pinged all the time for jobs in Canada, less in Australia. Whereas in my experience at American companies, we're trying to hire people from all over the world and we do it and bring them here.

Because its a slippery slope. A little socialism always leads to too much.

Why call out the fallacy by name when you use it?

> Even with remote work (which is being clawed back), this isn't stabilizing and there isn't enough housing (esp. affordably). It takes years before that much housing can be built, assuming we legalize it (YIMBY v NIMBY). We don't have a strong growing population without immigration so there is no future generation big enough in this economic Ponzi scheme.

So stop immigration, let the population contract, and the housing problem takes care of itself.

It'll take time for that many people to die off and free up housing, plus who will work the jobs? Who will buy the stuff?

We need more workers (record low unemployment in 2023), and more consumers (to generate more profits without more profit margins), and more tax payers (to cover fixed government costs).

We should basically open the borders, and enforce that those entering work fairly against Americans to keep them from driving down wages. This wouldn't be an issue if the business acted respectably.

Then finally the 99% screwed people realize that this is where (crony) capitalism is supposed to end up in the long run.

Time for a forceful redistribution and system change. Can’t happen soon enough.

> Time for a forceful redistribution and system change. Can’t happen soon enough.

Sadly revolutions have a really bad track record for the 99%. It may feel good in the short term but the people who end up assuming power are usually much worse.

OTOH fractional reserve banking and cronyism are really past their expiration dates. It'd be nice to stop kicking the can down the road - we have technological solutions now.

My point is that people should not have to serve or suffer for the system, but the system has to work for them. There is more than enough wealth for everyone, it’s only a distribution problem. For that, modern tech surely can help

The people created the system though - indirectly thru flawed / corrupt leaders but you get what you get. I'd like to understand now why we'd get a better set of leaders if we tear it all down now. I personally don't have any observations indicating why that would be true.

Similarly if you redistribute wealth - what's going to prevent it from becoming unequally distributed again? I'd imagine that a small subset of people would quickly game whatever system is devised and we're back at square one again.

Just for demonstration purposes: imagine we get rid of voting alltogether.

Instead, a random representative sample of 1000 people is chosen from the population, for some congress, for a year. They rule during that time. Some rules cannot be overruled, like the 1 year limit, no way to game that. Additionally, all communication of the chosen ones must be recorded and public, without exceptions.

This basically eliminates corruption or the rise of a „ruling class“, and lobbyism has a much harder task.

I would also argue that this will result in much better overall decisions - they might lack some initial knowledge but that is more than offset by missing corruption and cronyism

You can't parachute people into government without explaining to them how government works. Representatives don't just vote on legislation, they have to propose it and draft it. Someone has to understand and explain how all of that functions.

The people doing the drafting, suggesting, and explaining won't have term limits and will have the real power. They'll also be the ones targeted by lobbyists.

You'll end up with is a floor show with the real decisions being made behind the scenes by people who are mostly not directly accountable.

Not unlike what we have now. Different, possibly better in some ways, and possibly worse in others.

Instinctively I love term limits - however they are already in place in many states and there are many studies indicating mixed results at best - see: https://www.mischiefsoffaction.com/post/political-science-te...

A randomly assigned legislature sounds like a recipe to create an unaccountable bureaucracy of staffers and advisors 'guiding' the forced citizen through what must be done / can't be done legislatively. This is where the real power would lie - and frankly we are kind of there today. Most congresscritters spend 45% of their time campaigning, 45% of their time fundraising and 10% of their time looking damn cute. Staffers, lobbyists and think-tanks do most of the legislative work.

> unaccountable bureaucracy of staffers and advisors 'guiding' the forced citizen through what must be done / can't be done legislatively

Sounds like the UK civil service in Yes, Minister / Yes, Prime Minister.

https://youtu.be/FLm2X6sFa48 https://youtu.be/7hsNfNM0SvE

Term limits won’t do anything unless we ban the legal bribery that is unlimited campaign contributions through dark money groups and super PACs.

In my country, we have some kind of "popular tribunals" (i.e. tribunals where nobody is a professional outside of the lawyers) for trade disputes (although there are professional tribunals for appeals).

My sample is anecdotal at best, but the single instance in which I ended up in a position to witness a judgement and its rationale, the result was... laughably wrong. It was quickly overruled in appeal by the judges who actually know the law.

So... I'm not optimistic. Perhaps some AI could help, I guess? But that comes with lots of risks, too.

> Similarly if you redistribute wealth - what's going to prevent it from becoming unequally distributed again?

The redistribution shouldn't be a one-time event, but rather a persistently different approach to taxation, labor rights (unions!), welfare, etc.

We can see this working in a number of countries, especially the Nordics.

Of course, there will always be attacks on such a system, but such is life. Some battles need to be refought every two generations or so, that's just how humans work.

We can see this working in a number of countries, especially the Nordics.

Norway doesn’t count because of its sovereign wealth fund.

How is it working in Sweden though? That country still has billionaires (IKEA founder, Minecraft’s notch).

I think it just doesn’t work in general. If you try to set up a new system to redistribute the wealth, the winners will be those in charge of the system.

What exactly is the issue with having billionaires, as long as there is a decent standard of living for everyone and people are taken care of?

You need incentives to work hard and it is a good idea to have strong differences in outcome, as long as you have mostly equal opportunity.

Otherwise you end up where all socialist experiments end up: in economical, social and humanitarian hell.

I'm not saying there's an issue with it. I'm just saying that if you have billionaires then you haven't actually redistributed all of the wealth.

What makes you think the entrenched interests befitting from the status quo won't co-opt that process and funnel the wealth into themselves?

I mean hell, the whole BLM shindig petered out the nanosecond that it looked like the people with BLM signs in their yard might not get tackled by the first cop that see em'.

Now imagine how something with serious dollar signs attached would go(!!).

Should have read:

I mean hell, the whole BLM shindig petered out the nanosecond that it looked like the people with BLM signs in their yard might get to see someone walk down the street with an open container and not get tackled by the first cop that see em'.

everytime i hear someone talk about redistribution i wonder if they're asking to have more money, or if they'd be happy if the redistribution made them poorer.

Neither. More like: if you are sick, you can go to a doc for free, he is paid for by the public. Want to become a doc? Get that education for free, including some monthly money to live during studying. Those teachers? Same thing, paid for by the public.

Or you can travel with great public transport, for free. It’s not that I want more money, taken away from the rich, but the realization that everyone including me is much better off of everyone around also is taken care of. Strong public services are key.

Ontop of that, even more radical, companies should be run by the people working in it instead of shareholders siphoning out profits. Workers would never fire each other for more profits, or evade taxes that fund their neighborhood, or offshore their own jobs. Currently that might not be legal, that’s why it would need forceful redistribution.

Even on the simplest level: if you have free access to education/healthcare/… imagine how many brilliant people can try to become entrepreneurs or researchers instead of having to suffer two service jobs to provide their family. It’s statistics, that 60%+ of the population might include the next Einsteins, but are unnoticed and their potential wasted.

Interestingly, becoming an enterpreneur is really uncommon in Europe, where all you said was free. I think it actually has an inverse effect.

What definition of enterpreneur are you using?

According to [1] 14.5% of all EU workers are self-employed (i.e.: they have their own business, as small as it may be) whereas only 6.6% are in the USA.

[1] https://data.oecd.org/emp/self-employment-rate.htm

I'd say "self-employed" is essentially being a contractor or owner-operator, with no or very few employees and focused on facilitating the work for themselves (and possibly their immediate family), not growth & scaling & expansion.

Entrepreneurs start companies that are meant to grow beyond themselves and aren't just a legal framework to provide their work.

Not to disparage anyone who's self-employed. I am too, but I wouldn't consider me an entrepreneur. I might become one, but that would mean changing my work setup.

There several reasons for that, but one key thing is that people do not, in general, desperatly dream of the „get rich quick“ to escape their life situation. A big share is simply well off, taken care of if there are problems, and live their live in good conditions.

I am fine with not every useless thing to exist and waste resources on that.

Lots of people in the US that start companies are well-off, too, and they don't "desperately dream" of escaping their life situation. They just have a very different risk profile, and are happy to risk failing for a better chance at success.

It’s more than a desire for money too. The SV culture simply assigns a lot of respect to founders — definitely to the successful and also somewhat to those who try and fail. The founders I know do this not to get rich but to access that prestige. In fact, most know it will be a financially difficult task. Consider eg the lore of the Airbnb founders having to max out a binder full of credit cards…

For sure, when I said I was an enterpreneur in the US, Hungary and Spain, I got three different reactions. In the US, people think you're a cool kid, in Hungary they think you're a crook and in Spain they think you are poor.

Interestingly that's a popular myth. Much of Europe - especially Scandinavia - is much friendlier to startups than the US. The proof is the much higher social mobility.

What the EU lacks is the Ivy->Startup pipeline and insider/investor networks with access to old and old-ish money. And also the relentlessly aggressive branding and self-promotion (and tolerance of scamming and grifting) that defines US hustle culture.

If you're not in or around those networks already your chances of success in the US are pretty slim.

https://www.brookings.edu/wp-content/uploads/2016/07/02_econ...

The EU also lacks the equity compensation pop that makes people millionaires overnight after 10 years of hard work. It's largely cultural rather than regulation related, but for example Spotify IPO'd but minted few millionaires relative to if it had been a silicon valley startup like AirBNB or Dropbox or Slack.

The recent discussion on Slack's stock options showed how few SV startups make employees millionaires these days. It's as rare in SV as it is in Europe now.

Yes this is exactly it!

America is a great place to be rich. In Europe they tax you. But why should a millionaire care about healthcare for the poor or homeless shelters?

I don't think that's true, it's hard finding comparative figures that aren't out of date (one below is mostly ~2004), but it indicates European countries generally have more SMEs per 1000 people than the US, and a couple of more recent articles say the UK still has more.

Anecdotally, I live in Europe and know plenty of entrepreneurs, albeit mostly either in the tech space or as incorporated side gigs.

Source: https://www.nationmaster.com/country-info/stats/Economy/Micr...

My income is way above average. I'd be happy to be poorer if, in exchange, I was assured that my children and their children etc. will be treated decently by society no matter what happens.

then europe is made for you

Europe of the 1980s and 1990s, maybe. But that was a pretty short period that may not return.

Rich socialist here. I make a shitload of money. I also give a shitload to charity. I would expect that redistribution systems would take a lot of my income and wealth. Okay. It isn’t like I work ten times harder than my brother in law, despite getting paid ten times as much.

I’d like people to not go bankrupt paying for medical bills. I’d like everybody to be confident they can afford their next meal.

I dont think we have a very strong culture of leaders and an informed populace currently to definitely state that whatever comes after is better

The current system was forget in the furncace of extreme bravery and duty . A fledging nation was taking on the superpower of the time (UK). Every single founding father was taking direct personal risk to themselves and their families by declaring indeoendence.

The level of bravery needed for this is astonishing. The people doing this literally had no self-interest in doing so. What leaders can you find today with the same sense of duty that are able to negotiate this country into a better deal?

The answer is there arent any and anything new we put in place today will look like a disaster vs what we have now.

Its insane to discard a 250yr old system that has outlived 2 world wars and most competing systems, because some of its features have been gamed.

  Instead, you make mods. (Term limits being one).

So the solution to crony capitalism that has been taken over by big corporations and lobbyists manipulating the government is…

More government.

Please explain the logic behind this. Surely the solution is smaller government, no lobbying or money in government at all?

Unemployment is supposed to go up as interest rates go up. Not all downturns are as extreme as the great recession or the Great Depression

I have always understood it to be the other way round, lower interest rates make for higher employment as money is easier to come by.

Here is a source that confirms my understanding : https://homework.study.com/explanation/what-is-the-relations...

Can you explain the reasoning behind your understanding or provide some source to back it up?

I think that is what the parent said. Interest rates go up, unemployment goes up/employment goes down. The reverse would then be true.

(Unless the parent edited their comment)

Yeah, it does say it, maybe I just misread.

Savings and Loan Crisis had similar issues. Volcker raised interest rates extremely fast to combat inflation, which put a bunch of banks' assets during ZIRP underwater.

Regulations have controlled a lot of the serious problems back then, but there is no getting away from the fundamentals. Also, during QE, the Fed bought tons of overpriced MBS assets, and they're losing money right now for the first time in a long time. This doesn't really matter since they can't become insolvent; they just print money. But that has inflationary effects itself.

This is a much more complicated (probably worse) situation than most want to admit.

can you please elaborate on how the Fed is losing money now? thanks!

> Given increasing unemployment

Hasn't the latest jobs reports shown that unemployment is decreasing?

https://www.cnn.com/2023/03/10/economy/february-jobs-report-...

Sorry, I probably should have labelled this "increasing layoffs".

You're right that numbers as a whole are going up.

This all really reflects on the fed strategy. They are raising interest until… something breaks. And things are now starting to break

> Also, for those of you who didn’t live through 2008, there were plenty of people who assured everyone that everything was OK right until the music stopped

In the 2nd or 3rd week of the 2008 crash starting, they put on CNN this guy who predicted the entire crash years ago and wrote a book about it. And also 3-5 finance experts. All of them were laughing in the guy's face as the guy explained what was happening, why it was happening and what exactly was going to happen very soon. They were discrediting, belittling him and assuring the public how everything was totally okay. All of them were actual prominent personas in finance, with education, experience, credentials and whatnot.

Things happened exactly as the guy wrote in his book and explained on CNN. Everything came crashing down.

What's unforgettable is how all the actual experts with credentials were reassuring the public that everthing was ok SO hard to the point of laughing in the guy's face...

If the talking heads on the news were told how to react, then it is logical that they maintain the perception that everything is ok. A lot of economic factors are controlled by perception since we are debt based economy. If everyone in the US wanted their money in cash or gold/silver, banks and the entire system would collapse because it is not there. And in 2020 the Fed removed the 10% reserve requirement so I don't see that fairing well.

Who is the guy?

Roubini. He’s predicting another crash driven by debt.

Maybe Nassim Taleb?

Peter Schiff

https://www.youtube.com/watch?v=1G0tfb8ZefA

The second clip with Ben Stein (?!) being as confidently wrong as a person can be is hilarious.

i did buy stocks in 2008 though, and that was my most profitable investment in my entire life. He may have had a point.

We are beyond the point where the music will stop. In the last 15 years we have entered the full simulation. Short of a nuclear bomb going off on American soil, there is seemingly nothing that the upper class won't wish away with make-believe. When the class divide becomes great enough, the powerful can dictate reality. Something needs to tangibly get severely messed up for the emperor to admit he's not wearing clothes. Currency is not tangible enough, and there's plenty of room for people to escape with golden parachutes.

> Unless the loans are forgiven, in addition to making the depositors whole, SVB will still take a whole bunch of startups down with it.

This is fine. Healthy even. There are risks inherent with investing whether that’s a startup or otherwise and so letting them fail leads to better, safer, and more innovative business models that don’t rely on low interest rates and excess cash.

Ultimately SVB isn’t contagion because SVB unlike many other banks was heavily reliant on investments and securities that were highly exposed to interest rate increases. Shit happens. Businesses including banks and startups fail. World keeps spinning. Any argument for bailing out investors here is an equal argument for bailing out homeowners or any other person who was affected by high interest rates for any reason.

This isn’t a case of startups failing for being poorly run.

In some cases, the issue is literally (using small numbers to make it work for individuals), you have a steady job, $200K in the bank and owe $200K in loans, partially secured by the cash and partially by your income.

Tomorrow, the bank calls, and says “we spent your future paychecks and life savings, so we really need you to continue making payments on that loan”.

> This isn’t a case of startups failing for being poorly run

Sure but it is a case of buying the wrong product (SVB) and then reaping the repercussions of that bad decision. It doesn’t really work for individuals because it’s a B2B transaction and not B2C.

A bank is just some other business. Mismanaging the risk is the industry’s problem and now they get to eat the lunch they ordered. The world is scary, some things have insurance (FDIC which is not most deposits at SVB), and some things don’t. Is what it is. Doesn’t matter if it’s “right” or wrong - that’s a naive interpretation of business.

In some cases they were forced to used this bank by VCs. But even if not, if anything, they are the victims here. It is not like they could make full audit of bank prior decision or had any reasonable chance to see problems.

That is whole reason for having regulations and goverment audits.

People are confusing shareholders with demand deposit account holders.

Shareholders can and should be wiped out with very little to show for it. That is the risk they run.

Demand deposit holders getting wiped out is unthinkable. Taking any non-negligible haircut on their demand deposits (yes, even over $250k) will destroy confidence in the banking industry. This is far worse than the moral hazard of a bailout.

What must be done is not a corporate bailout to protect shareholders, yet tons of people think this is "socializing losses and privatizing gains."

> Demand deposit holders getting wiped out is unthinkable. Taking any non-negligible haircut on their demand deposits (yes, even over $250k) will destroy confidence in the banking industry. This is far worse than the moral hazard of a bailout.

Says who? 2/3 of amercians live paycheck-to-paycheck [1]. The only thing that a banking system has to provide them is day-to-day operations plus a small cushion (much smaller than 250k).

For that people accumulating over 250k is a privilege, one thay may as well come with the risk of getting it wiped out in very rare events such as this one.

[1] https://www.prnewswire.com/news-releases/23-of-the-us-popula...

> yet tons of people think this is "socializing losses and privatizing gains."

Think about the 2/3rds of americans above. Why shouldn't they think that?

> Think about the 2/3rds of americans above. Why shouldn't they think that?

Because:

> 2/3 of amercians live paycheck-to-paycheck [1].

Their paychecks are drawn from these demand deposit accounts.

This money above $250k is not being stored in an account like Scrooge McDuck just trying to get the highest score. This money is being held in a transitive fashion to pay employees, vendors, and lines of credit. This is what people are not understanding.

Yes, I agree. Depositors are entirely different issue then shareholders. I think that startups mentioned in this thread are the depositors.

Plus it is not just that shareholders took risk, it is also that market incentives push companies into too rules breaking and too much riks. Because it makes shares go up temporarily.

Nobody should have complete confidence in a bank. When I was young, I worked for a guy who ran multiple businesses and used multiple banks. He showed me how he balanced his treasury across multiple banks and instruments to minimize risk. He had lived through the Great Depression and seen banks fail. I took his advice seriously and have always used multiple banks. I am always concerned when any one account is higher than the FDIC limit. This requires cash flow planning and long term instruments, but it is what one has to do in this world.

and this is a dumb waste of resources/time/money/energy. the government should run a safe and boring bank for people and small businesses. no loans, no credit cards, just deposits (and allow people to buy safe bonds/ETFs through other banks).

they are already going to guarantee most accounts anyway.

> In some cases they were forced to used this bank by VCs.

Hmm it definitely wouldn’t have anything to do with SVB executives wooing VCs with lavish perks and favorable terms to increase deposits though right? That’s definitely not how the industry works.

Anywho - they are still victims and they should be made whole with remaining assets after FDIC makes depositors hole (which is a tiny percentage of deposits at SVB) - no doubt about that, but beside that these businesses and VCs are sophisticated and able to take on and assess risk. They were all calling to remove assets and urging portfolio companies to do the same because they understand the game. Not a lot of regular folks at SVB were. There’s a clear difference in sophistication. Next time maybe they’ll bank across a few organizations to reduce risk. Or maybe ask questions even.

If you’re going to use taxpayer dollars to bailout these businesses in excess of remaining assets you may as well pay lifetime salaries for the employees who worked at SVB. Don’t see a big difference there. I wouldn’t support either action.

SVB was literally playing by the rules outlined in banking regulations to reduce risks. Those rules are dumb, don't really reduce risk and don't fit SVBs business customers but they must be followed.

Society forced SVB to structure it's capital this way - society should be responsible to make the customers of SVB whole (SVB equity holders should be wiped out though - the risks of the business model are clear and arguably they should be aware of them as owners).

Afterwards we as a society should take a long hard thought about the success record of centrally planned economies.

SVB went bust and it busted because it made very poor decisions and had double interest rate exposure and unlike other banks (JPM, WF, BA, etc.) its depositors jointly all took their money out and created a bank run. SVB didn’t ask VCs and founders to all withdraw their money.

There’s nothing for society to do except for the FDIC to sort it what’s left and make sure the insured get their money and then the remaining assets are split up as fairly as possible.

> Afterwards we as a society should take a long hard thought about the success record of centrally planned economies.

I disagree. Going down the centrally planned economy route would be a huge mistake for the US (it’s a universal mistake for all countries except perhaps in dire circumstances like a global war). We should avoid central planning mistakes like bailing out or subsidizing bad businesses. Etc.

> Those rules are dumb, don't really reduce risk

Yes, they reduce risk. They do not eliminate risk. If you're gambling on a "sure thing" or "have a system" it doesn't mean you're always going to beat the house.

The house relies on suckers and rubes misunderstanding risk.

"society" is a funny way of spelling "banking lobbyists and the politicians in their pockets".

I really don't think this is true.

In the above situation you should be able to refinance. SVB's problem is that it gave out loans it can't quickly recall at very low interest rates and these loans are now worth less than their face value.

> I don’t think SVB will be bought

FDIC will create a bank then. Just like it did for the (now) 3rd largest bank failure in history, IndyMac:

https://news.ycombinator.com/item?id=35105606

They did that yesterday. https://www.fdic.gov/resources/resolutions/bank-failures/fai...

At least only SV tech douchebags are hurt. I doubt America will shed a tear for them.

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